Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[ggr]

Thank you for finding this thread from 2013 created by notable TMC contributor @luvb2b it's an amazing backgrounder to the current discussion, and comes more from a insider's technical understanding of the MMs short selling exemption for Option hedging.

He points the finger at likely a large MM conspiring with a hedge fund for options purchases causing the near instantaneous naked short sales sometimes amounting to up to 2% of TSLA entire outstanding shares (not just the float).

The best part of the thread IMHO is how he explains the mechanism for perpetuating a naked short position thereby avoiding paying carrying charges for share borrowing ( @Boomer19 this explains why TSLA borrow rates are low; this scheme doesn't depend on borrowing shares conventionally thus does not drive up the cost of borrowing shares), all the while never intending to deliver actual shares associated with these outsized naked short sales. @luvb2b comments that this is likely an illegal scheme.

Paging @StealthP3D @FrankSG @Hock1 I think we finally have stumbled upon our viable mechanism for naked shorting, and by extention, how this scheme is disrupted by inducing other MMs to call in their short shares in advance of a Share Dividend dispersment.

This scheme depends upon the hedge fund purchasing Options, which then induces the MM immediately to sell large numbers of TSLA shares due to their delta-hedging requirements. The hedge fund thus able to employ naked short selling by MMs to sell massive numbers of shares w/o locating them first, or paying the fees associated with borrowing shares to sell short. The other advantages are speed and the ability to sell arbitary numbers of shares without the normally expected restricts of supply, demand, and cost elastisity of borrowing those shares. Or as @Unpilot would say, "bastages".

This is the ACTUAL MECHANISM by which this scheme is able to crater the SP: They can short sell an arbitary number of shares, indeed however many shares are needed, to burn through the order book and thus force the SP to their desired price, thus making these shorts almost instaltly profitable. That's what we saw with the huge SP plunges on Feb 4, 2020 and again on July 13, 2020.

I believe this is also what we saw on Fri, Aug 21, 2020 from 3:32 to 3:36 pm where dumping 573K shares dropped the SP from $2,079.89 to $2,049.05 in 5 minutes. And magically, Call Writers (mostly MMs) saved about $28M in payouts to holders of those $2,050 Strike Call contracts (just ask for details if ur curious).

And the 2nd best part of the 2013 thread by @luvb2b ? Almost nobody else has ever read it.

So here's a link which will take you back to the discussion in Apr 2013. Note that @luvb2b has not been active on TMC for over 29 weeks, according to his profile so we will likely be best served by continuing this discussion here in Main rather than on the old thread:



Regards,
Lodger

At the time, I couldn't really understand what he was saying. I guess I've learned something in 7 years.

 

[JohnnyEnglish]

This is part of the information I received from my bank (for a UK ISA):

"The Stock Split is expected to become effective on 31st August 2020, with the additional New Tesla shares expected to be credited to your account on or after 31st August 2020.

Should you sell your Tesla shares before 31st August 2020, you will not be entitled to receive any additional shares.

When a company performs a Stock Split, the number of shares in the Company increases. This will impact the share price as the total value of shares will remain the same but there are more shares in circulation, so the price can decrease significantly. You may therefore notice a decrease in the share price before we are able to update your account and provide written notification of the effect on your holding.

Please note that you may not be able to place any orders to buy or sell Tesla shares via our share dealing platform between the close of the US market on Friday 28th August 2020 and the open of the US market on Monday 31st August 2020, whilst your account is being updated.

Please also be aware that the valuation of your Tesla holding is likely to show as zero from Saturday 29th August 2020 until Tuesday 1st September 2020 whilst your account is being updated. However, trading in Tesla shares on a Stock Split adjusted basis will be available on Monday 31st August 2020. An indicative price for Tesla shares will be available on our research centre should you wish to obtain this. "

Looks to be the same information I received from my UK bank.

 

[Artful Dodger]

What are the odds that this is the first time your broker has had to deal with a US company doing a stock split.

Go talk to your broker if you are worried. Pointless to spread these worries around.

My 'Broker' is one of the largest Charter National Banks in Canada, and is the "Shareholder of Record" of over 3 million shares. Canadian Banks wholey survived the 2007-9 U.S. sub-prime fiasco because they never lowered their borrowing standards. I am not worried about my shares.

Instead, let me paraphrase a countryman of yours:

"It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so." - Mark Twain​

This Forum is about information and analysis. Perhaps you'd be more comfortable not thinking about abusive naked short selling? There's plenty of diversions available. No need to understand a $40 drop in the SP over 5 min just half an hour before Options expiry on a Monthly Options Friday. Or a close exactly 2 cents out of the money for Options contracts that were worth $28M just 30 min before the Close. On no news.

Nope. Nothing to see. Move along.

 

[scaesare]

Agree. It should be less expensive to finance the Model 3 because it has better resale value and sells more quickly (on average).

True, and they account for resale value elsewhere in the calculations. But typically cost of financing is simply dependent on rate/terms.

What's odd is that the other ICE vehicle is in line with the Model 3 as compared to it's sale price, so it would appear that it's not something related to being an EV as opposed to an ICE

It's the Camry that's the weird outlier.

 

[Steve m]

My 'Broker' is one of the largest Charter National Banks in Canada, and is the "Shareholder of Record" of over 3 million shares. Canadian Banks wholey survived the 2007-9 U.S. sub-prime fiasco because they never lowered their borrowing standards. I am not worried about my shares.

Instead, let me paraphrase a countryman of yours:

"It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so." - Mark Twain​

This Forum is about information and analysis. Perhaps you'd be more comfortable not thinking about abusive naked short selling? There's plenty of diversions available. No need to understand a $40 drop in the SP over 5 min just half an hour before Options expiry on a Monthly Options Friday. Or a close exactly 2 cents out of the money for Options contracts that were worth $28M just 30 min before the Close. On no news.

Nope. Nothing to see. Move along.

I just refuse to be paranoid you may do what you wish.

My strong suspicion is that most naked shorts are covered quickly and are a result of day trading. The MM sell shares to match demand and buy shares to match demand.

If you have factual evidence proving otherwise then I am interested if all you have is conjecture then I am not interested.

Have a nice day anyway.

 

[UnknownSoldier]

Do any of you use Schwab as a broker? It’s interesting to me that many of you have posted messages from you broker about how the split will be handled. Schwab has not communicated anything to me regarding either my TSLA or AAPL holdings. There is a “forward split” notation under TSLA but no such notation under AAPL.

I have Schwab. My TSLA also says Forward Split, my AAPL doesn't say anything. I expect this is of literally no significance whatsoever. On September 1st, I will have 4 times the number of AAPL shares at 1/4 the price and 5 times the number of TSLA shares at 1/5 the price.

 

[JustSaying]

This is the first time since the beginning of last year that I think selling some could be a reasonable strategy for some. Not that I don't think it will be higher in a year or two, just that you would not be leaving massive gains (in the shorter term) on the table. By that I mean it's unlikely to double before the year is out (except through a temporary event, like a squeeze of some sort). That said, in a taxable account, it's still probably not the brightest move. The benefits of letting your untaxed gains continue to appreciate through this decade will be huge.

This story is far from played out but everyone's financial situation is different (right down to the percentage that TSLA is of liquid assets).

Sold some Friday at open( in a SEP account, it brings me back to my 12/31 /19 share position) . I plan to use 1/2 of the proceeds to buy leaps after the split, battery day and "palaver" settle down.

 

[riverFox]

I think the discussion on this board about the stock split is important even it does get a bit contentious at times. Lots of educational opportunities for idiots like me.

Iron sharpens iron.

 

[EV forever]

Pondering on taking action around Aug 29th- Sept 2nd. (esp. if we see a big rise next week).
1. Sell (some)
2. Sell some Sept 22 3800's CC's going for like 450$ +
3. + Could just sell enough shares to be $0 principal investment across all portfolios.

If I do(option 2) against 1 of 3 portfolios , my principal investment on Tesla will be $0, and still up another couple of Mils, if we hit 3800s.

Good chances of a pull back post Split, esp if this is due to Naked Shorts being "caught with their hands out of the cookie jar(no shares)". Need to think through if S&P, Battery Day expectations can out weigh the post split downward pull. ( a short interval b/w the two - post split vs S&P, battery Day looks possible, and that would be the time to get back in.)

(Let the disagrees begin , I know we are never supposed to sell )

This is the first time since the beginning of last year that I think selling some could be a reasonable strategy for some. Not that I don't think it will be higher in a year or two, just that you would not be leaving massive gains (in the shorter term) on the table. By that I mean it's unlikely to double before the year is out (except through a temporary event, like a squeeze of some sort). That said, in a taxable account, it's still probably not the brightest move. The benefits of letting your untaxed gains continue to appreciate through this decade will be huge.

This story is far from played out but everyone's financial situation is different (right down to the percentage that TSLA is of liquid assets).

In my case, I am thinking that 1st week of October is the best time to take some action. I am not planning to sell any shares, but am considering closing out all the options from my tax deferred IRA account. Will leave the LEAPS in my taxed brokerage account untouched, since they are ITM but selling would result in short-term gain - not worth trying to sell and then buy back in with my tax bracket.

Further, since I have more than exceeded my target number of shares for long-term hold, I may also consider selling some far OTM CCs at that time both in the IRA as well as in the taxed brokerage account. Yes, that would be short-term gain for the brokerage account for the premium, but if the stock is long term just in case it gets called.

My gut feel is that the SP is likely to peak in early October for the year. My rationale is below - would love to hear what folks here think as well:

1. Effect of split on SP will continue till after the split i.e 1st week of Sept.
2. S&P500 announcement would be sometime in early Sept. If it doesn't happen in Sept, then we will need to wait till Nov/Dec after 3Q ER comes out. The SP may take some hit if S&P500 announcement does not happen in Sept, but the next two items will help it recover in that case
3. Battery day may provide some boost to SP in the week after Sept 22. I am saying 'may' because it is not always that MMM recognizes the value immediately
4. P&D numbers for 3Q come out October 2nd. I am expecting Tesla will blow all estimates out of the water. This will provide a nice boost to SP.
5. Not much expected in terms of news after that till ER later in the month, likely on Oct 28. After that would be election time, would prefer to have some risk off the table during that time
6. This brings us to weeks of October 5th and 12th as likely consolidation weeks before ER.
7. So my plan is to target week of October 5th to sell off the call options. Will not sell the shares, but will consider CCs with strike prices 50% above whatever the SP is then.

Would love to hear what folks think of this strategy and reasoning.

 

[Open Interest]

Behind the scenes, the share you sell comes with a "due bill" requiring the seller to also deliver the dividend shares.

This is completely transparent to people like us. Just trade as usual, unless of course you are shorting...

No, of course not! I misunderstood and thought that yesterday marked some kind of hard deadline for those who wished to get in before the split, and attributed the price action of last week to that. I also thought SP might fall this week, post deadline. But that appears not to be the case. Thanks for the explanation.

 

[st_lopes]

True, and they account for resale value elsewhere in the calculations. But typically cost of financing is simply dependent on rate/terms.

What's odd is that the other ICE vehicle is in line with the Model 3 as compared to it's sale price, so it would appear that it's not something related to being an EV as opposed to an ICE

It's the Camry that's the weird outlier.

Could it not just be that Toyota provides low interest to zero interest financing on certain models in different markets?

 

[st_lopes]

I just refuse to be paranoid you may do what you wish.

My strong suspicion is that most naked shorts are covered quickly and are a result of day trading. The MM sell shares to match demand and buy shares to match demand.

If you have factual evidence proving otherwise then I am interested if all you have is conjecture then I am not interested.

Have a nice day anyway.

The Rolling Naked Tesla Short

Also invite you to consider that over 100,000 2,000 08/28 calls exchanged hands on Thursday, with open int barely moving day over day.

 

[bhtooefr]

The answer to that is to compare the total cost of ownership. Won't be much different in the end. You also might mention the safety of not having to fill up at a gas station.

Have you shown her this yet?

Tesla Model 3 Cost of Ownership Slightly Cheaper Than a Camry | Loup Ventures

The problem in that specific case is... actual cost of ownership does not matter in that kind of situation.

The perception of flaunting wealth is enough to cause problems, and a Model 3 is considered a luxury car, just as the competing ICE cars - an Audi A4, BMW 3-series, or Mercedes C-Class - are. (And, given the Audi A3, BMW 2-series, and Mercedes A/CLA-Class below them also having the perception of being luxury cars, despite non-luxury counterparts in the same segment being able to easily be configured to be more expensive than the base models, even a hypothetical Model 2 may not be enough to defeat this perception.)

An $80,000 F-150 blends in, a $35,000 Tesla does not. (In fact, that whole factor drives more than a few luxury trim F-150 sales.)

(It's something I've had to think about, to be honest...)

 

[Prunesquallor]

In my case, I am thinking that 1st week of October is the best time to take some action. I am not planning to sell any shares, but am considering closing out all the options from my tax deferred IRA account. Will leave the LEAPS in my taxed brokerage account untouched, since they are ITM but selling would result in short-term gain - not worth trying to sell and then buy back in with my tax bracket.

Further, since I have more than exceeded my target number of shares for long-term hold, I may also consider selling some far OTM CCs at that time both in the IRA as well as in the taxed brokerage account. Yes, that would be short-term gain for the brokerage account for the premium, but if the stock is long term just in case it gets called.

My gut feel is that the SP is likely to peak in early October for the year. My rationale is below - would love to hear what folks here think as well:

1. Effect of split on SP will continue till after the split i.e 1st week of Sept.
2. S&P500 announcement would be sometime in early Sept. If it doesn't happen in Sept, then we will need to wait till Nov/Dec after 3Q ER comes out. The SP may take some hit if S&P500 announcement does not happen in Sept, but the next two items will help it recover in that case
3. Battery day may provide some boost to SP in the week after Sept 22. I am saying 'may' because it is not always that MMM recognizes the value immediately
4. P&D numbers for 3Q come out October 2nd. I am expecting Tesla will blow all estimates out of the water. This will provide a nice boost to SP.
5. Not much expected in terms of news after that till ER later in the month, likely on Oct 28. After that would be election time, would prefer to have some risk off the table during that time
6. This brings us to weeks of October 5th and 12th as likely consolidation weeks before ER.
7. So my plan is to target week of October 5th to sell off the call options. Will not sell the shares, but will consider CCs with strike prices 50% above whatever the SP is then.

Would love to hear what folks think of this strategy and reasoning.

Am also considering taking some profits soon, maybe with 25% of my position. It’s all long-term taxable, 15% tax hit for me.

This 50% run up is weird. Obviously tied to the split announcement, but WTF? Naked short covering theories might fit the scenario, I’m not smart enough to figure it out (hence there are no options strategies here). Since it’s inexplicable, an inexplicable 33% drop Is just as likely. My cash needs aren’t immediate (repositioning for final retirement), so if SP drops enough I’d probably rebuy and defer my cash needs for the future.

Now, the recently linked CNBC(?) interview with S&P fund-tracking manager was enlightening. Clueless. Those guys haven’t been buying. So another run up when announcement actually happens?

Battery Day will be a bust as far as WS is concerned. They don’t understand it. Pointey-head stuff.

Q3 deliveries will be samo-samo. WS will dick around with their estimates trying to strike a balance between not looking ridiculously high but still tagging TSLA as a miss. 50-50 whether this will be a SP plus or not.

So, holding until post-split. I’m worried if there’s no S&P announcement soon after that. I always refer back to the 2020 ARK analysis which indicates we are way overvalued, especially if we expect 40-50% annual growth.

Any non-advice appreciated

 

[Tes La Ferrari]

Here is an interesting video about how Rimac redesigned their powertrain for their upcoming C_Two hypercar after the Tesla Roadster was announced and how two speed transmissions are stupid. I would love to own some Rimac shares:

Yes - any way to buy shares ?

 

[Stretch2727]

I was by the local Tesla store today. Sales guy said basically no inventory, everything is now build to order except for a few demo cars with some mileage.

I looked at EV-CPO an the only place that has any real inventory is EU, and mostly Model 3. My guess is most of these are on ships headed there.

Keep in mind, after the split, S & P Inclusion, Battery day, Tesla needs to deliver a lot of cars in the 2nd half of 2020.

You may have forgotten this reading this thread lately.

 

[Singuy]

In my case, I am thinking that 1st week of October is the best time to take some action. I am not planning to sell any shares, but am considering closing out all the options from my tax deferred IRA account. Will leave the LEAPS in my taxed brokerage account untouched, since they are ITM but selling would result in short-term gain - not worth trying to sell and then buy back in with my tax bracket.

Further, since I have more than exceeded my target number of shares for long-term hold, I may also consider selling some far OTM CCs at that time both in the IRA as well as in the taxed brokerage account. Yes, that would be short-term gain for the brokerage account for the premium, but if the stock is long term just in case it gets called.

My gut feel is that the SP is likely to peak in early October for the year. My rationale is below - would love to hear what folks here think as well:

1. Effect of split on SP will continue till after the split i.e 1st week of Sept.
2. S&P500 announcement would be sometime in early Sept. If it doesn't happen in Sept, then we will need to wait till Nov/Dec after 3Q ER comes out. The SP may take some hit if S&P500 announcement does not happen in Sept, but the next two items will help it recover in that case
3. Battery day may provide some boost to SP in the week after Sept 22. I am saying 'may' because it is not always that MMM recognizes the value immediately
4. P&D numbers for 3Q come out October 2nd. I am expecting Tesla will blow all estimates out of the water. This will provide a nice boost to SP.
5. Not much expected in terms of news after that till ER later in the month, likely on Oct 28. After that would be election time, would prefer to have some risk off the table during that time
6. This brings us to weeks of October 5th and 12th as likely consolidation weeks before ER.
7. So my plan is to target week of October 5th to sell off the call options. Will not sell the shares, but will consider CCs with strike prices 50% above whatever the SP is then.

Would love to hear what folks think of this strategy and reasoning.

Sounds good. Only risk is if FSD drops and it's truely that quantum leap, that's when your plan goes out on a date with hammer.

 

[Tes La Ferrari]

Excellent post and a wonderful tribute to some of our best posters (for as long as we had them).

TL;DR version: Do NOT sell ANY shares to buy anything. You'll end up like one of our previous posters here that sold shares to buy a Model S years ago--it ended up being a nearly 7-figure Model S because of how much the shares have grown . . . .

Suggestions:

2. You're on a wonderful path towards a reduced carbon future, but if you look at the total picture, you'll also want to "de-gas" your entire home. We're doing that now, replacing our two gas water heaters with electric unit; furnaces come next--going to electric heat pumps. (All tie-in well with our PV Solar array, which we plan to upgrade to a solar roof soon as we need a new roof anyway due to hail damage.)

3. If you're not there already, learn that a whole food, plant-based transition is necessary too. See: COWSPIRACY: The Sustainability Secret

***********************************************

Congratulations on your excellent investment choices, but remember we're still in the first few innings: DO NOT SELL any shares!

Very well said @TSLA Pilot .

People think elections happen every 4-5 years (depending on the country you live in) - but we vote for the world we want to live in every time we spend a dollar. If only more people made the connection between what's on their grocery lists & global warming.

I'm certainly not perfect - but I'm working on being a bit more conscious about my day to day choices - many of which many people are surprised to learn can pollute more than the some of their larger purchases.

 

[MC3OZ]

Thank you for finding this thread from 2013 created by notable TMC contributor @luvb2b it's an amazing backgrounder to the current discussion, and comes more from a insider's technical understanding of the MMs short selling exemption for Option hedging.

He points the finger at likely a large MM conspiring with a hedge fund for options purchases causing the near instantaneous naked short sales sometimes amounting to up to 2% of TSLA entire outstanding shares (not just the float).

The best part of the thread IMHO is how he explains the mechanism for perpetuating a naked short position thereby avoiding paying carrying charges for share borrowing ( @Boomer19 this explains why TSLA borrow rates are low; this scheme doesn't depend on borrowing shares conventionally thus does not drive up the cost of borrowing shares), all the while never intending to deliver actual shares associated with these outsized naked short sales. @luvb2b comments that this is likely an illegal scheme.

Paging @StealthP3D @FrankSG @Hock1 I think we finally have stumbled upon our viable mechanism for naked shorting, and by extention, how this scheme is disrupted by inducing other MMs to call in their short shares in advance of a Share Dividend dispersment.

This scheme depends upon the hedge fund purchasing Options, which then induces the MM immediately to sell large numbers of TSLA shares due to their delta-hedging requirements. The hedge fund thus able to employ naked short selling by MMs to sell massive numbers of shares w/o locating them first, or paying the fees associated with borrowing shares to sell short. The other advantages are speed and the ability to sell arbitary numbers of shares without the normally expected restricts of supply, demand, and cost elastisity of borrowing those shares. Or as @Unpilot would say, "bastages".

This is the ACTUAL MECHANISM by which this scheme is able to crater the SP: They can short sell an arbitary number of shares, indeed however many shares are needed, to burn through the order book and thus force the SP to their desired price, thus making these shorts almost instaltly profitable. That's what we saw with the huge SP plunges on Feb 4, 2020 and again on July 13, 2020.

I believe this is also what we saw on Fri, Aug 21, 2020 from 3:32 to 3:36 pm where dumping 573K shares dropped the SP from $2,079.89 to $2,049.05 in 5 minutes. And magically, Call Writers (mostly MMs) saved about $28M in payouts to holders of those $2,050 Strike Call contracts (just ask for details if ur curious).

And the 2nd best part of the 2013 thread by @luvb2b ? Almost nobody else has ever read it.

So here's a link which will take you back to the discussion in Apr 2013. Note that @luvb2b has not been active on TMC for over 29 weeks, according to his profile so we will likely be best served by continuing this discussion here in Main rather than on the old thread:



Regards,
Lodger

Love your work Dodger, but we need to step back and consider the big picture...

My summary would be - Manipulation can work short term and be profitable, but long term manipulation on the wrong side of the bet always ends is massive losses.

In this case if a short was that desperate in 2013 at 2013 prices and they had to roll their short illegally, as they could not afford borrow fees, or to close the short, I have a strong hunch how it ends...

I can't see any likely time when they could have covered, so I think they went bust long ago... or have turned a big pile on money into a very small pile of money. It is also fairly likely a rogue trader was sidestepping internal risk management protocols. Sustaining this level of deception for even 2-3 years is a big ask, 7 years is close to impossible IMO.

My other hunch is that if @luvb2b worked it out, others also worked it out, and some saw an opportunity to profit from the situation. That is the other big risk with manipulation, take on an un-hedged high risk bet, If others find out about it, they know the risk taker is vulnerable and that is an opportunity for them to profit.. Wall Street types are only playing for the same side in the context that it is every man for himself, and money is money, taking money from a competitor would please most of them..

We also see current failure to deliver reports are low. maybe naked shorts are closing, but that isn't the only thing that would move the price up.

If we consider this other great thread:- Elon Musk vs. Short sellers

Again shorts are using all kinds of legal tactics which should be illegal, and bordering on illegal..

But fundamentally Tesla has climbed the "Wall of FUD" manipulators have lost and are losing, because they are on the wrong side of the bet.

Investors, particularly long term investors should have more faith in open and transparent markets. I can't see any viable way of sustaining manipulation long term which doesn't merely compound losses.

If people are trading in options, they need to be aware manipulation can happen and does happen, but while short term manipulation is easy, longer term is much harder.

 

[ammulder]

Battery Day will be a bust as far as WS is concerned. They don’t understand it. Pointey-head stuff.

It depends on what they announce. If it's new chemistry, sure. But if they massively ramp battery capacity, especially if they multiply out by average car/powerwall/megapack selling price or contrast to the battery capacity known to be coming online for GM/VW.... that could be an obvious enough benefit for even the unenlightened.

Not to mention if they reveal the Plaid or a S/X refresh or anything like that. New products are shiny.